Properties in Canada can be complicated.
Whether a property is a freehold vs leasehold doesn’t seem to matter for some homeowners. However, as a concerned property owner, it makes sense to explore these ownership levels. Well, if you are not familiar with leasehold properties, the lack of knowledge is quite natural.
In fact, the number of freehold properties available in the market largely outnumbers the leasehold ones. So, if you have never heard of a leasehold property, it’s not a big deal.
In this article, you will learn the differences between freehold vs leasehold Canada – the two levels of property ownership. You might find leasehold properties attractive due to several factors, including their price. Let’s delve deeper into these two types of properties.
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What is a leasehold property?
Under a leasehold agreement, a property buyer purchases the building structure after taking the land on lease from the owner. You can obtain this land as a lease from private companies, individuals, or even government authorities. Simply put, you do not own the land on which you purchase the property, even if you own the latter.
Although you do not own the land, you own the right to use it. However, the landowner reserves the right to increase the rent when the agreement term comes to an end. The owner can even sell off the land once the agreement terminates. The maximum tenure of a leasehold property can be 99 years.
What is a freehold property?
In a freehold property, you would legally own the land on which the building is developed, as well as the structure. You would be the true owner of a property when you purchase a freehold property since there would be no separate landlord.
You cannot increase the rent of the land or sell it off, unlike a leasehold property. Therefore, you would be the ultimate gainer when the land value appreciates over time.
Now, you know why the price of a freehold property would be greater than that of a leasehold property after a few years. However, it is necessary for the buyer to make timely payments for the freehold property to the seller or lender.
What is conveyancing a property?
Conveyancing is the legal process of transferring ownership of a
property from one party to another. It encompasses a series of
intricate legal steps and paperwork that ensure a smooth and
legitimate transition of property rights. This process involves various
stages, including property searches, drafting contracts, conducting
due diligence on the title, and facilitating the exchange of funds.
Additionally, conveyancing professionals play a critical role in liaising
between buyers and sellers, managing negotiations, and ensuring
that all legal obligations are met. Their expertise is essential in
identifying any potential issues or discrepancies in the property’s
history or legal status, thus safeguarding the interests of all parties
involved.
Furthermore, the role of a conveyancer extends beyond the mere
administrative aspects. They serve as valuable advisors to their
clients, providing insights on the legal implications of the transaction
and offering guidance on how best to navigate potential
complexities. Ultimately, engaging a qualified and experienced
conveyancer is crucial in ensuring that property transactions
proceed smoothly, efficiently, and with full legal compliance, giving
both buyers and sellers peace of mind throughout the process.
Comparing leasehold vs freehold properties
Before you make your purchase decision, let’s explore the key differences between leasehold and freehold properties.
1. Property value
Instead of flats, freehold properties include mostly houses. Thus, these properties turn out to be more expensive than leasehold properties.
However, when you compare on a long-term basis, you realize that certain additional costs are associated with leasehold properties. These include administrative fees, service charges, and ground rents. The property owner cannot increase the ground rents or sell the land to any other party.
In the case of freehold properties, the land value keeps appreciating over time.
2. Ease of selling
Purchasing a freehold property is not bound by time. However, there’s a particular timeframe guiding the ownership of leasehold properties.
You can sell off a freehold property any time you want. However, the process becomes complex when it comes to leasehold properties. Particularly, when you are close to the termination of the contract, selling the property would become challenging.
No one would be willing to buy a property with a short lease. In these situations, you need to renew the lease at the outset to boost the resale value. However, you might have to shell out around 20% of the property value in the process.
3. Level of control
Many people prefer freehold properties to leaseholds, as they become the sole property owner. You can plan any type of structure on the land. This bestows the property owners with complete control over the property.
On the other hand, leasehold property owners need to follow certain restrictions. These are primarily associated with making structural changes or keeping pets at home. However, you reserve the liberty to decorate or repaint the building or the structure as per your will.
The level of control would be greater in the case of a freehold property.
4. Other strategic advantages
Well, you might look out for amenities such as parking zones, a gym, or a concierge around your home. When you move to leasehold property, you can benefit from these features. Particularly, when you dwell in a residential complex in a city, these amenities turn out to be valuable.
With freehold properties, you need to invest in installing these features. This can dig a big hole in your pocket.
5. Related responsibilities
When you own a freehold property, you would be responsible for making necessary repairs or repainting from time to time. However, as a leasehold property owner, you simply need to pay a part of the entire project. Here, the freeholder would shoulder the responsibility of making all the necessary arrangements.
Freeholders have a greater amount of responsibility when it comes to building maintenance. There would be no one to share the expenses with.
Leasehold vs freehold Canada — what have you learned?
Although leasehold properties prove to be more cost-effective, you need to be careful before purchasing one for yourself. Although you might be willing to embrace a better lifestyle, there might be no significant increment in the property value. Over time, the value of the building would depreciate. Although there would be an appreciation in land value, leaseholders would not have any right to the land.
Also, if you move to a leasehold property where the lease would come to a termination soon, there might be an increment in the ground rent. If you are willing to take a bank loan to purchase a leasehold property, be ready to shell out a larger down payment.
In any case, make sure to get your property insured. You can get the best quotes for both leasehold and freehold Canada property insurance policies by consulting one of the established insurance specialists.